Rwanda’s economy has featured among the highest growing in a World Bank report and is projected to grow at 6.2% rate this year.
According to 10th edition of the World Bank Rwanda Economic Update themed Sustaining Growth by Building on Emerging Export Opportunities launched today, the country experienced 5.9% in year-on-year growth.
However, Rwanda’s economy suffered a harsh slowdown in the second half of 2016 resulting in a 6% growth last year and 4.2% growth in the first quarter of this year.
The World Bank advises that Rwanda needs to increase volumes of its exportable commodities to boost its projected economic growth for the second quarter this year.
The slowdown was due to supply shocks that followed a drought and weak prices for Rwandan exports throughout 2016.
For instance, Central Bank (BNR) said last week that Rwanda’s formal trade deficit reduced by 25.6% in the first half of 2017 compared to the corresponding period of 2016, from $902.3 million to $671.2 million.
The bank attributed the recovery to international commodity prices that started in the fourth quarter of 2016 at the back of a higher deficit recorded in 2015, a year much affected by the drop in commodity prices.
Meanwhile, World Bank report indicated that export prices for commodities recovered partly in the first quarter of 2017 – helping traditional exports to reverse the negative trend of recent years, with performance of non-traditional exports remaining strong in 2016 and in the first quarter of 2017.
Tourism performance remained strong both in 2016 and in the first quarter of 2017. For imports, World Bank report says that the growth rate in 2016 was subdued as part of adjustment program while food imports remained strong on the back of food shortages as a result of drought.
The report also noted improvement in macroeconomic policy environment in 2017 with inflation dropping to below 5% by June 2017 down from the peak of more than 8 percent recorded in February same year.
Analysing the export sector performance as a special topic, the World Bank report on Rwanda Economic Update noted that exports increased from just $400 million in 2007 to $1.6 billion in 2016.
Of this, the report says, non-traditional exports have emerged as an important driver of that growth, thus laying the foundations for export-led growth in Rwanda.
Exports to the region and especially to the Democratic Republic of Congo and to the East African Community (EAC) countries, mainly as re-exports and small-scale cross-border trade contributed the bulk of export growth.
“Despite Rwanda’s small export sector, the progress made in the past decade sends a clear message that an export-led growth is within reach for Rwanda and country’s long-term growth strategy should continue focusing on strengthening economy’s capacity to produce exportable goods and services,” said Aghassi Mkrtchyan, World Bank Senior Economist.
For Rwanda to ensure sustainable export growth, the World Bank highlighted some policy considerations including maintaining a competitive real exchange rate by avoiding exchange rate misalignment.
The country also needs to focus on agriculture as a strategic sector that provides raw materials for emerging agribusiness, and continued engagement at the regional level to identify and remove non-tariff barriers within the EAC region.
Returning to a higher growth trajectory in 2018 is attainable, although there are risks, according to the report.
In the medium term, economic activity will benefit from the expected recovery of prices of traditional exports, including minerals, tea, and coffee. But the key for sustaining growth at rates in line with Rwanda’s historical average is private sector investment activity, especially in the tradable and export oriented sectors.
The country’s economy is projected to grow at 6.2% this year and 6.8% next year, according to Central Bank.